The central bank there literally printed up hundreds of trillions of yen to buy everything from government bonds to stock market ETFs to Real Estate Investment Trusts.
It kept interest rates near zero for many years, and just cut them into negative territory.
It launched the biggest currency devaluation effort in the world.
It pledged to do anything and everything to eliminate the nation’s “deflationary mindset.”
|The Japanese economy is on the brink of recession — again.|
And what has happened? Japan’s economy is on the brink of slipping into its FIFTH recession since the Great Recession in 2008. Japanese prices also just dropped another 0.3% in March, the biggest decline in three years. Total, unequivocal failure.
Then overnight, we got an even bigger shocker. The Bank of Japan basically threw in the towel! It didn’t boost the size of its 80 trillion yen-per-year QE program. It didn’t lower its negative-0.1% benchmark rate any further. And it didn’t say it would buy even more stock ETFs to artificially manipulate its market higher.
Result: The Japanese yen skyrocketed by almost 3 yen against the buck. The move was the biggest single-day surge since the May 6, 2010 “Flash Crash” in U.S. markets. The country’s benchmark Nikkei Stock Average also tanked 3.6%, putting pressure on markets worldwide overnight.
Why do I focus so much on the wild moves in the yen? First, because you can profit from its moves as an investor. I have helped my subscribers bag multiple rounds of gains on investments in this currency since the start of 2016 (Editor’s Note: Click here to get on board with Mike’s recommendations.)
This is exactly what you would expect to see happen at a key turning point in the credit cycle. It also comes at a time when several sectors in the U.S. economy – fueled by incredibly easy money – are starting to break down.
Just look at the first-quarter GDP report we got this morning. Growth slowed to only 0.5% in the quarter, less than the 0.7% expectation of economists and a sharp deceleration from 1.4% in the fourth quarter of 2015. In fact, it was the worst reading in two years.
|“Those assumptions look awful suspect to me.”|
Business investment plunged 5.9% – the most in almost seven years. A “core” reading that tracks domestic sales to non-government entities gained only 1.2%, the least since 2012.
And remember all the massive buildup in inventories I’ve been warning about? Something that argues for deep production cutbacks, particularly in bloated industries like autos? Well, they subtracted 0.33 percentage points from GDP after lopping 0.22 points off in Q4. That’s only going to get worse if auto sales, retail sales, and other indicators weaken as I expect.
Bottom line? The stock market has been on a tear due to assumptions about the success of Chinese stimulus, ongoing health in the U.S. economy, and the belief that even more central bank hocus-pocus will actually “work.” Those assumptions look awful suspect to me based on everything I’m seeing. So invest accordingly.
Agree? Disagree? Anything else you’d like to add about Japan’s latest stimulus “fail,” or the lousy GDP figures? Let me hear about it in the comment section.
The comments keep pouring in on the real estate market, with many of you also weighing in on what that means for the broader economy.
Reader Roy was one of those who said the housing market remains strong in his area. The Texan comments: “Anyone been to the Dallas, Plano, Arlington, Frisco or Fort Worth area lately? There are two billion dollars of residential and apartment buildings in progress.
“When a house gets listed for open house on the MLS, there are 15 to 25 buyers lined up to bid. Some bids have been as much as 15% over the asking price. No slowdown in these areas.”
Reader Al also weighed in on the Texas outlook positively, saying: “In Austin, Texas, prices of houses have increased approximately 7% the past two years. If you’re in the market to buy, you better not hesitate to offer the asking price since a full offer contract if signed by the buyer/seller is a binding contract. Otherwise, an offer of less than the asking price is subject to someone else coming along and outbidding the offer price.”
Reader Bill added: “In Asheville, North Carolina, housing prices are going up 10% every six months. People are moving here to get away from the floods, fires, hail, tornadoes and crime.”
But Reader Andy countered with this observation: “Just visited Lexington, Virginia, for the first time. It is home to Washington & Lee University and the Virginia Military Institute. It seemed that every third house was for sale – just a ton. Don’t understand why there is so much inventory.”
And Reader Gordon said at least one “Smart Money” real estate player is heading for the exits: “Sam Zell, ‘The Grave Dancer,’ is selling properties. He has always been ahead of the market.”
What does this all mean for the economy? Reader Wyatt A. said: “This is no surprise and as I suggested a few months ago, the U.S. is already in a recession and has been so for almost a year now. But we cannot collapse until after China implodes and Europe throws in the towel, which both are not very far away. By July of this year, all of the financial chaos will start to unravel – cascading similar to a domino effect.”
Lastly, Reader Howard said: “Just for a moment, consider the massive transfer of wealth to countries overseas from our shores over the last 30 years or so. While there’s no one palatable reason, there are many causes. Many developed, industrialized countries are now making considerable investments overseas from their own borders.
“The question is, ‘Do we want to go on losing our productive capacity and mortgaging our kids’ future with what has been created?’ It just brings massive uncontrollable debts, massive unemployment, and massive redistribution of wealth.”
Thank you for weighing in. As I mentioned earlier this week, I’m more concerned about the commercial side of the business than I am residential – at this point. That’s where the construction, valuation, and investment bubble was concentrated this time, as opposed to more than a decade ago, when residential was the focus of out-of-control speculation and reckless borrowing.
It’s obvious from the latest GDP figures that this is much more than an energy-sector story. We have problems in autos. We have problems in real estate. We have problems in the consumer sector. And we have problems in technology. That’s just a partial list, and I doubt it’ll be much longer before Wall Street is forced to acknowledge reality.
Once again, my three recommendations in this environment are:
Join me on May 2 for an urgent conference call I’m holding with my colleague Mike Burnick. On that 2 p.m. Eastern call, which you can register for here, I’ll explain exactly what I see coming down the pike – and how you can profit.
Join me at the MoneyShow Las Vegas from May 9-12 at Caesars Palace, so you can catch my two presentations on what’s going on and how to profit. Click here or call 800-970-4355 to register today (please mention priority code 040948).
Set sail with me on the Money, Metals, & Mining Cruise this July 10-17 aboard the Crystal Serenity. The journey from Anchorage to Vancouver is going to be amazing, and include multiple opportunities for personal interaction, presentations, panel discussions, and more. Just click this link or call our representatives at 800-797-9519 and ask for the Money, Metals, & Mining special rates.
And of course, if you have any comments you want to add to the discussion on real estate and the economy, feel free to add them below.
Healthcare M&A picked up overnight, with AbbVie (ABBV) agreeing to buy Stemcentrix for $5.8 billion in cash and stock to add potential cancer treatments to its line of products. It’s also trying to bulk up ahead of increased competition for its hepatitis C and arthritis drugs.
Speaking of M&A, Abbott Laboratories (ABT) is buying St. Jude Medical (STJ) for $25 billion to add STJ’s line of medical devices to its suite of offerings. The company’s products are used to treat diabetes and cardiovascular conditions, among others.
If your crystal ball is particularly clear, and you know what things will look like in Europe in 100 years, then you definitely want to step up and buy the latest bonds being sold over there. Belgium just issued 100 million euros worth of 100-year bonds in a private sale arranged by Goldman Sachs and Nomura. The coupon was a “whopping” 2.3%. That follows a similar recent sale by Ireland.
Breathalyzers are designed to catch drunk drivers. Could “Textalyzers” to detect distracted drivers be coming next? That’s the intriguing angle of this New York Times story.
Legislation could give police the ability to hook up a device to a driver’s smartphone. It would determine if the person was texting, calling without the use of a hands-free speaker, or otherwise violating communication-related laws.
So what do you think of 100-year government bonds – are they a good or bad buy? How about the latest burst in healthcare M&A? Or Textalyzers? Share your thoughts in the comment section below.
Until next time,